Many revenue agencies around the world routinely use external datasets (information obtained from a third party that includes records relating to multiple unknown individuals or entities) in domestic compliance, education and service improvement work. The international exchange of tax information has also moved to focus on regular automated exchange of tax information.
Inland Revenue already uses external datasets in its work, and the courts have made clear in the past that these datasets fall within the existing collection powers. However, the greater availability and usability of data means that regular, repeated collection of such datasets is more likely to be considered necessary or relevant. Some other jurisdictions, including the United Kingdom and Australia, have moved to provide specific rules for regular collection of this type of information, rather than rely solely on the general information-collection power.
While ad hoc and one-off collection of datasets will continue to fall within the existing collection rule, the Government proposes to introduce a new rule to empower regulations to be made governing the repeating, regular collection of external datasets. Inland Revenue would be expected to have trialled the collection of the data (or similar data) using the general collection power before seeking a regulation. This previous collection and analysis would help demonstrate that it was considered necessary or relevant to collect the data regularly.
A regulatory framework would provide greater clarity and enhance the transparency around this type of regular information collection. The recommendation to seek a regulation would need to include information about how the data would be used and why it was considered necessary or relevant. In some cases the exact uses would not be made public, as it might, for example, reveal information about compliance activity that would assist taxpayers to avoid the activity and their obligations. However, consistent with the approach taken in Australia and the United Kingdom, the Government considers that transparency about the general parameters and use of this form of data collection will assist with public understanding and trust, as well as assisting with compliance.